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2019 elections, exchange rate may delay banks’ recovery

Post-recession recovery of commercial banks in the country is still in doubt because a number of economic issues are expected to impact on their performance in coming months , it has been learnt.

Findings by our correspondent revealed that most of the banks were still grappling with huge non -performing loans and this situation would be worsened by the slight volatility still persisting in the naira -dollar exchange rate .

The banking industry ’ s NPL level hit 15 . 07 per cent in June , far above the five per cent limit directed by the Central Bank of Nigeria.
Some banking sector players told our correspondent that huge NPLs in the books of some banks had led to capital erosion , making it difficult for such banks to carry out their banking operations optimally to enhance increased profit.

According to them, a number of banks still have large dollar -denominated loans in their books and that delay in significant appreciation of the naira against the greenback is not ameliorating their situation .

Banking sector analysts said the fact that economic activities would slow down in the second half of 2018 owing to preparation for the 2019 elections indicated that the banking sector would undoubtedly take more beating.

The Chief Executive Officer , Cowry Asset Management Limited , Mr. Johnson Chukwu , said although the country had exited recession , there were a number of challenges lying ahead .

This , he said , had to do with the fact that the slight growth witnessed by the economy was as a result of improvement in the oil sector.
Consequently , he said , “ The banking sector is not yet out of the woods, because a number of challenges bordering on the exchange rate and the slow growth in the economy will impact on their performance negatively. ’’

An analyst at Ecobank Nigeria, Mr . Kunle Ezun , said the banking sector was resilient but there were a number of issues the sector might have to contend with in the coming months , since the sector was not immune to happenings in the larger economy .

Other analysts said the recession had led to issues bordering on huge NPLs and inadequate capital in the banking sector and general slow growth in the economy might not ameliorate the situation in the banking sector.

In its latest report titled, ‘ Nigerian banks : Survival of the fittest’ , Renaissance Capital’ , an investment bank said, “ We believe that the focus for the banks that have struggled in this environment is to clean up their loan books and strengthen their capital positions.

“ In our view , the biggest risk to both the NPL clean-up process and capital is the currency , as most of the banks continue to use the official rate (N 305/$ ) to market their foreign currency exposures .

“ We acknowledge that current market valuations remain depressed for the tier -2 banks , although the year-to-date share price increases and the improved macro outlook should make these banks more willing to engage in discussions around a capital raise . This, in our view , will drag out the prospect of a RoE recovery .

“ For the entire banking sector, we believe that there is a risk to NIMs in FY 18 given the scope for monetary policy easing . We expect that general business activity will also start to slow down in the 2 H18 , ahead of the 2019 general elections. All of these factors could contribute to a delayed recovery for some of the bank . ’’
Experts agree that the recovery of the banking sector is still in doubt considering the uncertain future before the sector .